Checking in on the Global South

Developing countries are catching up, but not evenly

"Downtown Kuala Lumpur at Night" by Will Simmonds, CC BY 2.0

The other day on Twitter we were discussing the “Global South” (because Brad DeLong had a podcast about it). So I thought I’d do a post checking in on the general status of developing countries, because there have been some interesting developments in recent years that might change our overall story about global inequalities.

“Global South” is a term used by some economists, and also (confusingly) by some leftists, and is more or less congruent with “developing countries”. Here’s Wikipedia’s map:

There’s no hard-and-fast definition, but just eyeballing it, it looks sort of like “countries that were industrialized by the 1990s”. I guess it’s still an open question of whether countries that move from developing to developed status will graduate into the “Global North”.

But how many will make that move? That’s the really important question here. Do we live in a world of entrenched inequality, where former colonizers and a few of their friends monopolize global wealth at the expense of former colonies? Or will countries eventually exhibit “unconditional convergence”, as the simplest economic growth models predict? The future of the world really hangs on this question.

From divergence to convergence

For a long time, it looked as if convergence just wasn’t happening. A famous 1992 paper by Robert Barro and Xavier Sala-i-Martin found that from 1960 to 1985, poor countries failed to catch up with rich ones. In 1997, Lant Pritchett argued that the divergence between developed and developing countries that started in the late 19th century had continued in the 20th. And in 2006, Mark Weisbrot, Dean Baker, and David Rosnick claimed that in from 1980 through 2005, growth in poor and middle income countries actually slowed down.

All this was bad news for the Global South’s hopes of catching up with the Global North. Economists generally agreed that instead of unconditional convergence, countries showed “conditional convergence” — that poor countries could only reach parity with rich ones if they had broadly similar institutions and levels of human capital . The subtext was that poor countries just didn’t have what it took to become rich. On the political left, this was of course taken as evidence that developing countries were being held down by neocolonialism, or at least that the capitalist global economic system didn’t have what it took to lift nations out of poverty.

But when the facts change, we have to change our minds. And an increasing number of economists are arguing that the facts have changed since the early 1990s — the developing countries have started catching up.

Economists Dev Patel, Justin Sandefur, and Arvind Subramanian pointed this out in 2018 (Subramanian had been making the argument for a while). They noted that if you did a regression of growth on income in the 60s or 70s, you’d find a positive correlation — richer countries probably tended to grow a bit faster than poor ones. But the sign of that correlation is now negative, and it probably flipped sometime in the 90s. Here’s their graph:

This means that since the 90s, there has been a negative relationship between growth and income; the poorer you were, the faster you tended to grow. That’s the classic economic convergence prediction. Ironically, convergence seems to have started at exactly the moment that Barro and Sala-i-Martin proclaimed it dead!

Arvind Subramanian @arvindsubraman

Convergence result recalls Ed Glaeser’s “We now know that income convergence across US regions essentially stopped the moment that Barro and @XSalaimartin wrote about it." Seems convergence began once Barro, @gregmankiwblog & Lant Pritchett documented divergence @JustinSandefur

(Note: This convergence isn’t just about China, either. Since each country counts as just one data point in these regressions, China’s massive size doesn’t affect the result. But of course if you looked for convergence in terms of people rather than countries, you’d find even faster catch-up; China and India are just so enormously huge, and both have been growing faster than the average poor country.)

Anyway, Patel, Sandefur, and Subramanian have formalized their argument in a new paper. They write:

Since the mid-1990s, developing countries began to converge toward levels of income of advanced countries. This process accelerated and became strongest in the 2000s…[This] is not driven by advanced nations lowering their growth performance but rather by developing countries raising theirs…Essentially, the entire distribution of growth amongst rich countries has remained stable over time; in contrast, the entire distribution of poor country growth has shifted up.

Interestingly, they also find no “middle-income trap”; middle-income countries are actually growing the fastest of all.

Another recent paper by Michael Kremer, Jack Willis, and Yang You finds the same result, and argues that the world has been tilting from divergence toward convergence since the 1960s. In other words, since decolonization. They also find that poor countries have improved the quality of their institutions — exactly the thing that Barro and Sala-i-Martin were pessimistic about.

It’s easy to tell a story here. Decolonization left poverty, shattered institutions, and artificial borders in its wake. Countries of the Global South immediately started turning things around, but the momentum of post-colonial chaos, exacerbated by the Cold War, made it a hard ship to turn. But as the Cold War ended, post-colonial wars were resolved, and the Global South rebuilt its institutions, the underlying laws of economic growth started to take over.

But this is actually too simple a story. In fact, developing country catch-up is pretty slow when averaged across countries, because there are quite a lot of developing nations, and some aren’t catching up at all. The fact that middle-income countries have been growing faster than poor countries actually suggests a divergence within the Global South — some countries have been pulling away from the pack and joining the developed nations, while others have languished.

And of course this varied by region. As a whole, Asia has been taking off, Latin America and the Middle East have grown at a more moderate pace, Africa has lagged behind, and South Asia was similar to Africa until the 90s but is now starting to pull away:

Of course, this chart is weighted by population, so you might reasonably look at it and conclude that it’s mostly China (or mostly China and India). But in fact, Southeast Asia has done very well. And interestingly, growth has spread across that entire region.

Keep an eye on Southeast Asia

Back in December I wrote a Bloomberg post about Southeast Asia’s remarkable growth, and I’ve been tweeting about it as well. Here’s a picture of that growth, showing percentage increases in inflation-adjusted GDP since 1990:

A few things to note here:

• Most Southeast Asian countries have doubled or 2.5Xed their GDP per capita since 1990. Vietnam and Laos are ahead of the pack.

• I didn’t even show Myanmar on this graph, since its GDP has gone up by such a huge percent that it just swamps the rest of the graph.

• Not one single Southeast Asian country has failed to grow during this period. It’s a region-wide thing.

• In fact, if you plot nearby Bangladesh on the same graph, its curve looks much the same as these others (a tripling since 1990).

• Even more important than the size of the growth, in my opinion, is its shape. All of these lines look like smooth exponential curves for at least the last two decades.

As I noted in my Bloomberg post, what’s remarkable about this growth is how different all the countries are, but how similar their growth curves all are since the 90s. Vietnam and Laos are communist states gradually opening up their economies to private business and foreign investment; Myanmar is a multiethnic military dictatorship focused on natural resources and agriculture; Thailand and the Philippines are Western-oriented dysfunctional democracies; Indonesia is a sprawling mostly-Muslim democracy whose economy is split between manufacturing and resource extraction; and Malaysia is a Muslim country with a sort of East Asian style development state. And yet they all have smooth exponential growth curves.

And lest you think smooth exponential growth like this is the norm, let’s take a look at a few other developing countries from other regions:

These lines just look nothing like the Southeast Asia lines. They’re much bumpier and they don’t go up by nearly as much.

In other words, something interesting is happening in Southeast Asia. Figuring out what it is will take some digging. But given the vast diversity in characteristics and outcomes among these countries, it seems unlikely that the answer will lie in some strategic industrial policy or change in resource prices. Instead, something appears to be lifting up the economy of the entire region to grow. That could be China, but my guess is that it’s going to be bigger than China. My guess is that it’s an agglomeration effect — a function of the general clustering of supply chains and product demand in Asia. That would also explain why Bangladesh, which is located very close by, also got invited to the party.

Also, it’s important to remember that while these countries might have similar growth, their levels of income are far apart:

Many of these countries are still poor. Thailand and Indonesia are middle-income countries, and Malaysia is close to being a developed country. (Actually, this graph is in 2011 international dollars, so these GDP levels should all be a little higher; Malaysia, for example, is at about $30,000 per person.)

But all of them are catching up to rich countries. Even the Philippines, the worst performer on the graph, has been gaining ground on the U.S. since around 2006.

And in case you feel like dismissing this growth because the countries are still at such a low level, consider Malaysia. The country is a major exporter of high-tech electronics, and its income per capita is comparable to that of Greece or Poland. The time is not far off when Malaysia will be unambiguously considered a developed nation. In How Asia Works (an excellent book you should definitely read), Joe Studwell uses Malaysia as an example of a country that failed to do industrial policy right. But in fact they kept trying, and eventually — perhaps with a little boost from the vast global forces moving economic activity to Southeast Asia — they succeeded.

It will be interesting to see whether people start penciling them in to the “Global North”.

A changing understanding of the Global South?

Why focus on Southeast Asia? Because the region was completely colonized by European powers (and briefly by Japan). It started out desperately poor and agrarian at the time of decolonization, and it suffered horrendous wars and atrocities for decades. And yet it has now produced what looks like one fully industrialized nation (two, if you count tiny Singapore), and all the other countries look to be in the process of catching up. If this keeps up, in another 30 years Southeast Asia will join Europe, North America, and Northeast Asia among the ranks of regions that everyone agrees are economically developed.

And that might break the whole concept of the Global South. To some, the idea of a Global South means that history is destiny — that the dead hand of colonialism, or the living hand of neocolonialism, is holding down the developing world. To others, it’s an expression of the idea that poor countries just don’t have what it takes to get rich. Either way, it’s a form of implicit defeatism — a belief that historical and/or cultural forces are stronger than economic forces.

Southeast Asia hasn’t yet broken these ideas on the wheel of hard data, but it might not take much longer to do so. Bangladesh’s similar performance, meanwhile, suggests that South Asia might not be far behind.

Which leaves the question: Can Africa do the same? Of course there will be some who say it can’t, and the only way to prove them wrong will be for Africa to actually industrialize. But if and when Africa follows in Southeast Asia’s footsteps, I expect the entire notion of a Global South to quietly fall by the wayside. Which is to say that the economic development of every region of the globe is exactly what’s required to finally convince us that we’ve moved past the colonial era.

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